TerraClassicUSD

What is TerraClassicUSD (USTC)?

TerraClassicUSD is the token on the Terra Classic blockchain, formerly known as UST, an industry leading stablecoin until early 2022.

Having been previously traded as UST, the currency was given the rebranding treatment after the collapsed Terra ecosystem went through a hard fork as part of a revival plan to breathe life into it once more.

Before May 2022, Terra was one of the top blockchain ecosystems, built around an innovative algorithmic stablecoin protocol and a thriving decentralized finance (DeFi) community. Then disaster struck.

What Happened to Terra Luna and UST?

A decentralized application (dApp) called Anchor Protocol was one of the biggest reasons for Terra’s burgeoning popularity in 2022.

Offering an industry-leading 20% interest on UST stablecoin deposits and attracting funds from retail investors, lending companies, and yield-chasing hedge funds alike, Anchor at one point was home to up to 72% of the UST in circulation.

Critics likened Anchor to a Ponzi scheme because its interest rates appeared too good to be true. All that’s known is that Anchor would loan depositor funds to borrowers in much the same way as any modern bank.

Then, crypto watchers pointed out that a series of unusually large transactions led to a de-peg of UST’s relationship to the US dollar and a “bank run” on the Anchor protocol.

Luna Foundation Guard (LFG) was in the process of buying Bitcoin to help back Terra’s algorithmic stablecoins. LFG had to sell a significant portion of this reserve at a loss as they fought to keep UST afloat.

According to third-party auditors JS Held, LFG spent around $2.8 billion in BTC and almost $50 million in stablecoins to defend the UST peg. Terraform Labs, Terra’s founding firm, also spent over $600 million of its own capital. It remains to be seen whether or not this was a deliberate attack on Terra. Still, financial giants Blackrock and Citadel Securities issued statements in the aftermath denying that they traded UST. According to Forbes, Blackrock had recently become the primary reserve manager for the cash reserves of a competing stablecoin, USDC, and therefore was already involved in crypto. Citadel, which has both a market maker (Citadel Securities) and a hedge fund (Citadel Advisors) that trade US securities, was already in the game. Their involvement in crypto had begun via an investment from crypto venture fund Paradigm. However, Citadel has quite the track record regarding questionable activity, with a particular highlight being a $97 million fine and a 5-year ban from operating in China. Citadel founder and CEO Kenneth Cordele Griffin was the GOP’S top donor in 2022. He also came into the public eye by appearing in front of Congress in 2021. His testimony, according to MarketWatch, met significant backlash and spurred the trending Twitter hashtag “#kengriffinlied.”

Who are the Founders of TerraClassicUSD?

Terra was founded in early 2018 by Do Kwon and Daniel Shin. Do Kwon was the CEO of Terraform Labs. He was also considered the project’s leader by most in the Terra community.

Terraform Labs also created the Luna Foundation Guard, introducing an asset reserve to help support its algorithmic stablecoins. LFG was funded by donations from Terraform Labs and had aimed to hit a reserve of $10 billion in BTC. Unfortunately, this didn't materialize.

Daniel Shin co-founded and headed Ticket Monster, an e-commerce platform also known as TMON, before Terra. He also co-founded Fast Track Asia, a popular startup incubator.

Following the collapse of Terra, Kwon deployed the revival plan titled “Terra Ecosystem Revival Plan 2” which forked the ecosystem into two blockchains, Terra Classic and Terra 2.0.

On September 15, 2022, a court in South Korea issued an arrest warrant for Kwon, accusing him and five others of violating local market laws. However, the courts dismissed a request for an arrest warrant against Shin in early December 2022. According to South Korean prosecutors, Kwon is currently hiding in Serbia, having made his way there via Dubai from his Singapore residence.

How Does TerraClassicUSD Work?

TerraClassicUSD is a decentralized, algorithmic stablecoin backed by LUNC and, for a time, by the BTC reserves of the Luna Foundation Guard.

Previously known as UST, USTC was designed to be convertible at a 1:1 ratio to a dollar’s worth of LUNC, allowing arbitrage traders to redeem USTC for LUNC when USTC is discounted.

When Terra collapsed, this led to the hyperinflation of LUNC, as these traders picked up USTC and burned it. Then, they minted LUNC and dumped that LUNC on the market.

Before the collapse, USTC was the primary stablecoin of the Terra ecosystem and the leading decentralized stablecoin in the blockchain industry. It was noted for quick, easy transactions and the fact that it could be deposited to Anchor Protocol for what, in hindsight, were unsustainably high returns.

It is still possible to transact USTC on the Terra Classic blockchain, but it hasn’t been anywhere close to a dollar since May 9, 2022. USTC can therefore be classified as a defunct stablecoin.

What Makes TerraClassicUSD Unique?

USTC was at one time unique since it offered a truly decentralized stablecoin that competed with and even expanded its reach beyond DAI. Most of the other major stablecoins in the market are centralized, so USTC played a vital role for a time.

Now, it remains a warning of the dangers that exist in the industry. Cryptocurrencies, especially global payments projects like USTC, can potentially disrupt the global settlements industry. Unfortunately, the world’s financiers have access to unlimited capital.

It can’t be proven that it was indeed one or more of these well-capitalized TradFi giants that took down USTC and Terra. What’s clear, rather, is the fact that the slightest vulnerabilities in an algorithm can indeed be exploited by an agent or agents with money and motive.

How is the TerraClassicUSD Network Secured?

USTC is secured by the Terra Classic network, which follows the Tendermint proof-of-stake consensus laid out by the Cosmos SDK.

Validators bond LUNC tokens to the protocol and can create and validate blocks. They’re rewarded for this with more LUNC in the form of block rewards, with their likelihood of being selected for a block being proportional to their LUNC stake.

This stake can be increased by delegators or LUNC stakers who don’t want to run a node but are happy to lock their coins up to secure the network and earn a return.

What is the Use of USTC?

Since USTC is now defunct and stands little chance of hitting its peg again, it’s hard to advocate for its reliability as a payment mechanism. However, if both parties in a transaction agree to use it, there isn’t anything stopping them.

USTC can also pay for transactions and smart contract calls on the Terra Classic network.

Who Controls TerraClassicUSD?

USTC is in the hands of the Terra Classic validators, who have full freedom to make proposals and vote on the future of the currency. Terraform Labs is no longer involved in the conversation, abandoning Terra Classic in favor of Terra 2.0, which features no algorithmic stablecoin.

How Much USTC is In Circulation?

The supply of USTC isn’t fixed and changes day by day since it can be burned and minted using LUNC. Currently, there is a circulating supply of over 9 billion USTC.

How Do You Buy USTC?

You can buy USTC within a Terra wallet using other Terra Classic stablecoins or LUNC, but also on various exchange platforms. Despite the defunct nature of USTC as a stablecoin, there is still considerable on-exchange volume to be seen.

How Do You Store USTC?

You can store USTC in a Terra Classic wallet. However, if you’re buying USTC in the hope that it surges back towards the value of 1 USD, you might be able to make a profit quicker by storing it on an exchange.

Is USTC a Good Investment?

The Terra Classic blockchain isn’t exactly a ghost town because there are a handful of functioning dApps on it and an NFT project called Galactic Punks.

However, this is a far cry from the promised land that Terra once was, with a flurry of activity and new projects emerging almost daily.

The USTC token can’t really be called a stablecoin anymore, although it’s impossible to rule out a resurgence with complete certainty.

If it someday regains its peg, investors could multiply their money by as much as 50x at current USTC prices of around $0.02. However, if it goes to $0, that’s still a 100% loss of your funds.